<PAGE>
MANAGER AND FOUNDER
AQUILA MANAGEMENT CORPORATION
380 Madison Avenue, Suite 2300
New York, New York 10017
INVESTMENT SUB-ADVISER
U.S. Bank National Association
111 S.W. Fifth Avenue
U.S. Bancorp Tower
Portland, Oregon 97204
BOARD OF TRUSTEES
Lacy B. Herrmann, Chairman
Vernon R. Alden
David B. Frohnmayer
James A. Gardner
Diana P. Herrmann
Sterling K. Jenson
Raymond H. Lung
John W. Mitchell
Richard C. Ross
Ralph R. Shaw
OFFICERS
Diana P. Herrmann, President
James M. McCullough, Senior Vice President
Kerry A. Lemert, Vice President
Christine L. Neimeth, Vice President
Rose F. Marotta, Chief Financial Officer
Richard F. West, Treasurer
Edward M.W. Hines, Secretary
DISTRIBUTOR
AQUILA DISTRIBUTORS, INC.
380 Madison Avenue, Suite 2300
New York, New York 10017
TRANSFER AND SHAREHOLDER SERVICING AGENT
PFPC Inc.
400 Bellevue Parkway
Wilmington, Delaware 19809
CUSTODIAN
BANK ONE TRUST COMPANY, N.A.
100 East Broad Street
Columbus, Ohio 43271
INDEPENDENT AUDITORS
KPMG LLP
757 Third Avenue
New York, New York 10017
Further information is contained in the Prospectus,
which must precede or accompany this report.
ANNUAL
REPORT
SEPTEMBER 30, 2000
TAX-FREE TRUST OF
OREGON
A TAX-FREE INCOME INVESTMENT
[Logo of Tax-Free Trust of Oregon: a square containing a line drawing of
mountains with two pine trees in front]
[Logo of the Aquila Group of Funds: an eagle's head]
ONE OF THE
AQUILASM GROUP OF FUNDS
</PAGE>
<PAGE>
[Logo of Tax-Free Trust of Oregon: a square containing a line drawing of
mountains with two pine trees in front]
SERVING OREGON INVESTORS FOR OVER A DECADE
TAX-FREE TRUST OF OREGON
ANNUAL REPORT
"CONSISTENCY"
November 10, 2000
Dear Fellow Shareholder:
If there is one word that captures the essence of Tax-Free Trust of Oregon,
that word is "CONSISTENCY."
The Trust has constantly attempted to provide:
* CONSISTENCY of share value,
* CONSISTENCY in the TAX-FREE return produced by the Trust,
* CONSISTENCY of quality of investments and,
* CONSISTENCY in the type of investments for the Trust.
CONSISTENCY OF SHARE VALUE
As you are aware, management of the Trust cannot control interest rates or
their effect upon the market. Interest rates are primarily controlled by the
Federal Reserve Board (the "Fed.") The Fed increases or decreases rates as they
feel is necessary in order to maintain the stability and growth potential of the
economy of the United States.
When the Fed feels that growth in the economy is increasing at too rapid a
pace, they tend to increase interest rates and reduce the supply of money in
order to slow down the rate of growth. (This is what has happened during the
past year or so.) On the other hand, when the Fed feels that the economy needs
stimulation, there is a tendency to decrease interest rates and increase the
supply of money in order to provide an additional impetus to the overall
economy.
Interest rate changes have the effect in the marketplace of creating
changes in the share value of fixed-income securities such as the Trust. As we
have previously indicated, when interest rates go up, the share value goes down.
And, when interest rates go down, the share value goes up. What we have done is
to use various investment management techniques to dampen the swings that can
occur in the share value of the Trust.
Despite the variations in share price that have taken place since the
inception of the Trust, management of the Trust has constantly strived to
provide, to the maximum extent possible, CONSISTENCY in the value of the Trust's
shares. This you will note from the chart below.
[Graphic of a bar chart with the following information:]
SHARE NET ASSET VALUE
12/31/86 $10.07
12/31/87 $9.48
12/31/88 $9.64
12/31/89 $9.91
12/31/90 $9.89
12/31/91 $10.32
12/31/92 $10.46
12/31/93 $10.92
12/31/94 $9.92
12/31/95 $10.72
12/31/96 $10.55
12/31/97 $10.77
12/31/98 $10.79
12/31/99 $10.08
9/29/2000 $10.29
</PAGE>
<PAGE>
Since the majority of investors using the Trust are pre-retirees or
retirees, this action by the Trust of maintaining a stable share value is what
we feel is in the best interest of all shareholders. We want you to know that
when you need money from your investment in the Trust, it is THERE - at
approximately the same value that it has been all along.
CONSISTENCY IN THE TAX-FREE RETURN PRODUCED BY THE TRUST
When you look at the Trust in terms of income produced on a year-by-year
basis, you will observe that we have tried to provide the maximum level of
yearly TAX-FREE return as can be produced by a quality-oriented portfolio of
municipal securities.
As you are aware, this level of return will vary from year to year as
interest rate changes by the Fed affect the overall marketplace. Nevertheless,
there is a CONSISTENCY to the level of return that the Trust would like to
provide for you and other shareholders.
Although the income level received by shareholders will vary from year to
year, it does have a CONSISTENCY to it. And, this is why shareholders buy and
own the Trust - for that CONSISTENCY of TAX-FREE income.
During recent years, the level of SPENDABLE TAX-FREE return provided to
shareholders has ranged between 4.51% to 4.98% based upon an average share value
of the Trust.
As we have emphasized, shareholders of Tax-Free Trust of Oregon should not
buy or sell the Trust based upon capital appreciation, such as they would with
an equity or stock fund.
Rather, an analogy for a shareholder of Tax-Free Trust of Oregon would be a
person buying a dairy cow for the steady stream of milk it supplies, not for
what it might be worth when he/she sells it.
What the Trust is providing is a relatively steady stream of TAX-FREE
income together with a relatively stable share value.
Shareholders buy and hold their position in Tax-Free Trust of Oregon for
the longer term, not for a quick in and out. Therefore, shareholders do NOT and
should NOT look upon the Trust for its total return - but, rather for the income
stream it provides in the form of TAX-FREE dividends.
Also, when you look at the level of TAX-FREE income provided by the Trust
as of September 30, 2000 - 4.77% - and measure that against the taxable income
required to provide the same amount of money in your pocket, here's what things
look like.
[Graphic of a bar chart with the following information:]
TAX-FREE TRUST OF OREGON'S DOUBLE TAX-FREE DISTRIBUTION RATE AS COMPARED TO
THE TAXABLE EQUIVALENT RATE AN INVESTOR WOULD HAVE TO EARN AT VARIOUS TAX
BRACKETS
Rate of Return
Taxable Equivalent Rate Double Tax-Free Distribution Rate
Tax Bracket
28% 7.08% 4.64%
31% 7.49% 4.64%
36% 8.10% 4.64%
39.6% 8.61% 4.64%
</PAGE>
<PAGE>
CONSISTENCY OF QUALITY OF INVESTMENTS
Since inception of the Trust, management has CONSISTENTLY sought
high-quality investments for its shareholders.
We don't like surprises. Nor, do shareholders like surprises. We believe
the best way to avoid surprises is to stick with quality.
The pie chart below gives you a breakdown of the quality of the individual
securities of the Trust as at the Annual Report date of September 30, 2000.
[Graphic of a pie chart with the following information:]
PORTFOLIO DISTRIBUTION BY QUALITY
AAA 51.79%
AA 42.23%
A 4.26%
Below A and not rated 1.72%
As you will recall, the Trust's prospectus restricts its investments to
only the top four quality securities - AAA, AA, A, Baa - although there are nine
different grades of quality associated with municipal bond investing ranging
from the highest to the lowest. We have always tried to make sure that
shareholders know that, to the maximum extent possible, their invested money
will be there when they need it. The best way we know to accomplish this
objective is by sticking with quality.
This is why we CONSISTENTLY seek to maintain most of the Trust's money in
the upper quality securities - AAA AND AA. There was in excess of 94% of the
Trust's portfolio in these two credit ratings as of the Trust's fiscal year end
- September 30, 2000. As you will appreciate, the exact level of quality will
vary from time to time based upon availability of securities in the marketplace
to achieve the Trust's objective.
CONSISTENCY IN THE TYPE OF INVESTMENTS FOR THE TRUST
Management of Tax-Free Trust of Oregon has CONSISTENTLY embraced the idea
that your investment should not only help shareholders financially, but also
help your state and its communities. Thus, investments in the Trust are as
diversified as possible. Diversification geographically and by type of project
is another way of ensuring that your money is doing the best job possible for
not only you, but also for your community and state.
[Graphic of a pie chart with the following information:]
PORTFOLIO DISTRIBUTION BY MARKET SECTOR
Education 41.07%
Electric Power 4.41%
Healthcare 8.01%
Housing 6.00%
Public Facilities 11.05%
Transportation 7.55%
Utilities 13.33%
General Purpose 7.84%
Other 0.74%
</PAGE>
<PAGE>
SUMMARY
As we have tried to illustrate in this report to you, the essence of
Tax-Free Trust of Oregon is CONSISTENCY. This is what we feel that shareholders
are primarily interested in. And, this is exactly what we are trying to provide
to you and other shareholders.
CONSISTENCY OF APPRECIATION
As always, we again wish to express our appreciation for the confidence you
have shown by your investment in Tax-Free Trust of Oregon. We can assure you
that we will CONSISTENTLY do our best to merit your continued level of trust.
Sincerely,
/s/ Diana P. Herrmann /s/ Lacy B. Herrmann
---------------------- ---------------------
Diana P. Herrmann Lacy B. Herrmann
President Chairman, Board of Trustees
</PAGE>
<PAGE>
PERFORMANCE REPORT
The following graph illustrates the value of $10,000 invested in the Class
A shares of Tax-Free Trust of Oregon for the 10-year period ended September 30,
2000 as compared with the Lehman Brothers Quality Intermediate Municipal Bond
Index and the Consumer Price Index (a cost of living index). The performance of
each of the other classes is not shown in the graph but is included in the table
below. It should be noted that the Lehman Index does not include any operating
expenses nor sales charges and being nationally
oriented, does not reflect state specific bond market performance.
[Graphic of a line chart with the following information:]
<TABLE>
<CAPTION>
Trust's Class A Shares
Lehman Brothers Quality Intermediate
Municipal Bond Index With Sales Charge Without Sales Charge Cost of Living Index
</CAPTION>
<S> <C> <C> <C> <C>
9/90 $10,000 $ 9,600 $10,000 $10,000
9/91 $11,142 $10,726 $11,170 $10,339
9/92 $12,194 $11,736 $12,221 $10,648
9/93 $13,401 $13,014 $13,552 $10,934
9/94 $13,324 $12,794 $13,323 $11,258
9/95 $14,664 $13,894 $14,469 $11,545
9/96 $15,309 $14,648 $15,254 $11,891
9/97 $16,478 $15,720 $16,370 $12,148
9/98 $17,856 $16,736 $17,429 $12,329
9/99 $18,044 $16,694 $17,385 $12,653
9/00 $19,006 $17,573 $18,299 $13,090
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
FOR PERIODS ENDED SEPTEMBER 30, 2000
SINCE
1 YEAR 5 YEARS 10 YEARS INCEPTION
Class A (6/16/86)
With Sales Charge 1.03% 3.81% 5.80% 6.18%
Without Sales Charge 5.26% 4.66% 6.23% 6.48%
Class C (4/5/96)
With CDSC 3.23% n/a n/a 4.13%
Without CDSC 4.27% n/a n/a 4.13%
Class Y (4/5/96)
No Sales Charge 5.32% n/a n/a 5.18%
Lehman Index 5.33% 5.33% 6.63% 6.50%* (Class A)
5.33% n/a n/a 5.42% (Class C&Y)
* From commencement of the index on 1/1/87.
Total return figures shown for the Trust reflect any change in price and assume
all distributions within the period were invested in additional shares. Returns
for Class A shares are calculated with and without the effect of the initial 4%
maximum sales charge. Returns for Class C shares are calculated with and without
the effect of the 1% contingent deferred sales charge (CDSC), imposed on
redemptions made within the first 12 months after purchase. Class Y shares are
sold without any sales charge. The rates of return will vary and the principal
value of an investment will fluctuate with market conditions. Shares, if
redeemed, may be worth more or less than their original cost. A portion of each
classes' income may be subject to federal and state income taxes. Past
performance is not predictive of future investment results.
Previously, the Trust's performance was compared to the Lehman Brothers
Municipal Bond Index rather than the Lehman Brothers Quality Intermediate
Municipal Bond Index. A change was made by the Trust because it provides a
better basis of comparison due to the more intermediate nature of the
portfolio's duration. During the Trust's fiscal year ended September 30, 2000,
an investment in the Trust's Class A shares (without sales charge) increased
5.26% whereas the Lehman Brothers Quality Intermediate Muncipal Bond Index
increased 5.33% and the Lehman Brothers Municipal Bond Index increased 6.18%.
</PAGE>
<PAGE>
MANAGEMENT DISCUSSION
As of the fiscal year end of September 30, 2000, the total net assets of
Tax-Free Trust of Oregon stood at approximately $315,600,000. This compares with
the level a year earlier of approximately $328,800,000 on September 30, 1999.
This slight decrease in the Trust's size was primarily due to the continued
strength of the equity markets and the desire by investors to purchase stocks as
opposed to bonds.
The net asset value of Class A Shares of the Trust on September 30, 2000
was $10.29 as compared to the $10.27 on September 30, 1999.
In the portfolio management of Tax-Free Trust of Oregon we continue to
utilize various management techniques in order to maintain the share value of
the Trust at as stable a price as possible. A key factor in our emphasis
involves our focus upon high-quality securities in the portfolio. This is done
to minimize the risk of fluctuation. In times of economic uncertainties, lower
quality securities tend to fluctuate in price to a considerably greater extent.
The other key factor utilized involves the maturity level of the Trust.
While the portfolio of Tax-Free Trust of Oregon consists of securities ranging
from one year to thirty years, the average maturity is approximately 13.76 years
and the duration of maturities in the portfolio is approximately 8 years. And,
of course, the Trust is broadly diversified in its ownership of securities.
All these factors tend to further enhance the stability of the share value
of the Trust.
As you are aware, there is an inverse relationship between interest rates
and share value. This means that as interest rates rise, the price of bonds in
the portfolio tend to go down. Conversely, when interest rates decline, the
price of bonds tend to go up. During this past fiscal year, the Federal Reserve
Board continued to raise short-term interest rates. Indeed, since June, 1999,
short-term interest rates have been increased 6 times. Five of these rate
increases were at .25 of 1%. However, the sixth was at .50 of 1%. These
increases were primarily designed to avoid inflationary pressures in our economy
as well as to slow down the overall rate of economic growth in our country. It
would appear that the action by the Fed is achieving these goals.
Another factor influencing the rate structure of municipal bonds is
governed by the level of bond issuance. The last two years have seen the volume
of municipal bond issuance drop, thus, contributing to some amount of rise in
the value of municipal bonds. This basically occurred throughout the country as
well as in the Oregon market. During the year 2000, issuance of municipal bonds
nationally dipped by 28% from the level in 1999. This decline in issuance has
been fortuitous for those investors who have been insightful enough to own
municipal bonds. As the interest rate situation in our country continues to
evolve, management of the Trust will do all it can do to maintain the stability
of the share value of the Trust.
As we have indicated in previous reports, we continually strive to provide
the shareholders of the Trust a satisfactory double tax-free yield as well as
high stability of the principal of their investment. We feel that maintaining
the disciplines you are accustomed to, will provide you the comfort needed to
navigate this financial environment.
</PAGE>
<PAGE>
[Logo of KPMG LLP: four solid rectangles with the letters KPMG in front of them]
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders of
Tax-Free Trust of Oregon:
We have audited the accompanying statement of assets and liabilities of
Tax-Free Trust of Oregon, including the statement of investments, as of
September 30, 2000, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Trust's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and financial highlights. Our procedures
included confirmation of securities owned as of September 30, 2000, by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Tax-Free Trust of Oregon as of September 30, 2000, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the financial highlights for each of the five
years in the period then ended, in conformity with accounting principles
generally accepted in the United States of America.
/s/ KPMG LLP
-------------
New York, New York
October 20, 2000
</PAGE>
<PAGE>
TAX-FREE TRUST OF OREGON
STATEMENT OF INVESTMENTS
SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
RATING
FACE MOODY'S/
AMOUNT STATE OF OREGON GENERAL OBLIGATION BONDS - 48.4% S&P VALUE
</CAPTION>
<S> <C> <C> <C>
City of Beaverton
$ 910,000 5.950%, 04/01/2003 Aa3/AA $ 928,200
960,000 6.050%, 04/01/2004 Aa3/AA 979,200
1,020,000 6.150%, 04/01/2005 Aa3/AA 1,042,950
1,080,000 6.250%, 04/01/2006 Aa3/AA 1,105,650
Bend Oregon Transportation Highway Systems
(MBIA Corporation Insured)
1,135,000 5.300%, 09/01/17 Aaa/NR 1,113,719
Chemeketa Oregon Community College District
(Financial Guaranty Insurance Corporation Insured)
1,385,000 5.500%, 06/01/2014 Aaa/AAA 1,436,938
Clackamas County School District #115 (AMBAC
Indemnity Corporation Insured)
615,000 5.700%, 06/01/2007 Aaa/AAA 648,057
1,000,000 6.150%, 06/01/2014 Aaa/AAA 1,068,750
Clackamas County School District #86 (Canby)
(State School Bond Guaranty Program)
3,535,000 5.250%, 06/15/2020 Aa2/AA 3,380,344
Clackamas/Washington County Oregon School
District #3J (Financial Guaranty Insurance
Corporation Insured)
1,620,000 5.000%, 06/01/2017 Aaa/AAA 1,536,975
Clackamas and Washington County School District #3J
1,150,000 5.875%, 10/01/2009 A1/A+ 1,183,063
Clackamas, Multnomah and Washington County
School District #7J
1,500,000 5.700%, 06/15/2010 Aa2/NR 1,539,375
Deschutes and Jefferson County School District #2J
(MBIA Corporation Insured)
3,700,000 5.600%, 06/01/2009 Aaa/AAA 3,774,000
Douglas County School District #116
(Winston-Dillard) State School Bond
Guaranty Program
1,020,000 5.625%, 06/15/2020 NR/AA 1,021,275
Eugene Oregon (Parks & Open Space)
1,465,000 5.250%, 02/01/2018 Aa2/NR 1,419,219
1,555,000 5.250%, 02/01/2019 Aa2/NR 1,496,688
Hood River County School District (AMBAC
Indemnity Corporation Insured)
2,000,000 5.650%, 06/01/2008 Aaa/AAA 2,060,000
</PAGE>
<PAGE>
Jackson County School District #549C, (Financial
Security Assurance Insured)
$ 1,000,000 5.300%, 06/01/2008 Aaa/AAA $ 1,023,750
Josephine County School District #7 (Grants Pass)
(Financial Guaranty Insurance Corporation Insured)
2,700,000 5.700%, 06/01/2013 Aaa/AAA 2,797,875
Lane County School District #4J
2,000,000 5.375%, 07/01/2009 Aa3/NR 2,025,000
1,000,000 5.375%, 07/01/2013 Aa3/NR 1,003,750
Lane County School District #52J (Financial
Guaranty Insurance Corporation Insured)
750,000 6.400%, 12/01/2009 Aaa/AAA 813,750
Lane and Douglas County School District 97J
(Siuslaw) (State School Bond Guaranty Program)
1,000,000 5.400%, 06/15/2019 Aa2/NR 981,250
Lane County Oregon School District #040 (Creswell)
(State School Bond Guaranty Program)
1,430,000 5.375%, 06/15/2020 NR/AA 1,394,250
Lincoln County Oregon School District (Financial
Guaranty Insurance Corporation Insured)
1,245,000 5.250%, 06/15/2012 Aaa/AAA 1,263,675
Lincoln County (MBIA Corporation Insured)
1,000,000 5.375%, 02/01/2010 Aaa/AAA 1,012,500
Linn County Oregon School District #7 (Harrisburg)
(State School Bond Guaranty Program)
1,660,000 5.500%, 06/15/2019 NR/AA 1,643,400
Malheur County Jail Bonds (MBIA Corporation Insured)
1,345,000 6.300%, 12/01/2012 Aaa/AAA 1,424,018
Marion and Clackamas County Union High School
District #7J (Financial Security Assurance Insured)
1,000,000 7.000%, 06/01/2010 Aaa/AAA 1,088,750
1,340,000 6.000%, 06/01/2013 Aaa/AAA 1,415,375
Metropolitan Service District Refunding (Oregon
Convention Center)
4,320,000 6.250%, 01/01/2013 Aa2/AA+ 4,374,648
Multnomah County School District #40
5,100,000 5.625%, 06/01/2012 NR/AA- 5,208,375
</PAGE>
<PAGE>
Northern Oregon Correctional (AMBAC Indemnity
Corporation Insured)
$ 1,000,000 5.400%, 09/15/2016 Aaa/AAA $ 997,500
Oak Lodge Water District (AMBAC Indemnity
Corporation Insured)
215,000 7.300%, 12/01/2005 Aaa/AAA 236,500
215,000 7.300%, 12/01/2006 Aaa/AAA 235,962
215,000 7.400%, 12/01/2007 Aaa/AAA 236,231
Southwestern Oregon College General Obligation
(MBIA Corporation Insured)
1,120,000 6.000%, 06/01/2025 Aaa/AAA 1,155,000
State of Oregon Board of Higher Education
900,000 6.200%, 10/15/2007 Aa2/AA 928,125
3,195,000 6.400%, 10/01/2011 Aa2/AA 3,245,449
2,000,000 6.250%, 10/15/2012 Aa2/AA 2,050,000
2,150,000 6.500%, 10/01/2017 Aa2/AA 2,179,992
2,890,000 6.000%, 10/15/2018 Aa2/AA 2,929,738
2,000,000 4.875%, 08/01/2019 Aa2/AA 1,795,000
2,560,000 5.500%, 08/01/2021 Aa2/AA 2,508,800
8,000,000 5.000%, 08/01/2022 Aa2/AA 7,190,000
1,500,000 5.000%, 08/01/2022 Aa2/AA 1,348,125
1,655,000 5.600%, 08/01/2023 Aa2/AA 1,636,381
1,500,000 5.600%, 08/01/2023 Aa2/AA 1,483,125
6,300,000 6.000%, 08/01/2026 Aa2/AA 6,804,000
State of Oregon Elderly & Disabled Housing
725,000 6.250%, 08/01/2013 Aa2/AA 754,000
State of Oregon Veterans' Welfare
505,000 9.000%, 04/01/2008 Aa2/AA 557,394
700,000 9.200%, 10/01/2008 Aa2/AA 899,500
1,190,000 5.200%, 10/01/2018 Aa2/AA 1,151,325
Polk County School District #2 (Financial Security
Assurance Insured)
1,000,000 5.400%, 06/01/2012 Aaa/AAA 1,016,250
Polk, Marion, and Benton County School District #13J
(Financial Guaranty Insurance Corporation Insured)
1,000,000 5.500%, 12/01/2008 Aaa/AAA 1,036,250
</PAGE>
<PAGE>
City of Portland
$ 1,480,000 5.100%, 10/01/2009 Aaa/NR $ 1,491,100
2,790,000 5.750%, 06/01/2013 Aaa/NR 2,870,213
2,000,000 5.600%, 06/01/2015 Aa2/NR 2,017,500
500,000 5.250%, 06/01/2015 Aa2/NR 491,875
1,120,000 5.125%, 06/01/2018 Aaa/NR 1,071,000
Portland Community College District
1,000,000 6.000%, 07/01/2012 Aa3/AA 1,025,000
Salem-Keizer Oregon School District #24,
(Financial Security Assurance Insured)
2,000,000 4.875%, 06/01/2014 Aaa/AAA 1,900,000
Tri-County Metropolitan Transportation District
4,600,000 6.000%, 07/01/2012 Aaa/AAA 4,761,000
Tualatin Hills Park and Recreation District (MBIA
Corporation Insured)
2,470,000 5.750%, 03/01/2012 Aaa/AAA 2,581,150
2,000,000 5.750%, 03/01/2015 Aaa/AAA 2,085,000
Umatilla County Oregon (Financial Guaranty
Insurance Corporation Insured)
2,000,000 5.600%, 10/01/2015 Aaa/AAA 2,030,000
Umatilla County School District #8R (AMBAC
Indemnity Corporation Insured)
700,000 6.100%, 12/01/2012 Aaa/AAA 740,250
Umatilla County School District #6R (AMBAC
Indemnity Corporation Insured)
2,675,000 5.050%, 06/15/2022 Aaa/NR 2,461,000
Wasco County Oregon School District #12
(Financial Security Assurance Insured)
1,135,000 6.000%, 06/15/2015 Aaa/AAA 1,213,031
Washington County
2,500,000 6.200%, 12/01/2007 Aa1/AA 2,550,000
3,110,000 6.000%, 12/01/2013 Aa1/AA 3,269,388
Washington County School District #88JT (Financial
Security Assurance Insured)
585,000 6.100%, 06/01/2012 Aaa/AAA 611,325
2,315,000 6.100%, 06/01/2012 Aaa/AAA 2,456,794
2,385,000 4.650%, 06/15/2016 Aaa/NR 2,146,500
2,055,000 5.125%, 06/15/2012 Aaa/NR 2,067,844
</PAGE>
<PAGE>
Washington and Clackamas County School
District #23J
$ 2,000,000 5.400%, 01/01/2010 A1/NR $ 2,030,000
1,000,000 5.650%, 06/01/2015 A1/NR 1,008,750
Washington & Multnomah County School
District #48J
1,175,000 5.500%, 06/01/2006 Aa2/AA- 1,205,844
1,130,000 5.600%, 06/01/2007 Aa2/AA- 1,161,075
1,000,000 6.150%, 06/01/2008 Aa2/AA- 1,002,560
1,415,000 5.700%, 06/01/2008 Aa2/AA- 1,455,681
1,440,000 6.000%, 06/01/2011 Aa2/AA- 1,490,400
2,010,000 6.500%, 09/01/2011 Aaa/AAA 2,047,968
Washington & Multnomah County School
District #48J (Financial Guaranty Insurance
Corporation Insured)
2,500,000 5.375%, 06/01/2019 Aaa/AAA 2,446,875
Washington & Yamhill County School District #58J
(AMBAC Indemnity Corporation Insured)
70,000 6.600%, 11/01/2004 Aaa/AAA 70,101
80,000 6.600%, 11/01/2005 Aaa/AAA 80,130
90,000 6.600%, 11/01/2006 Aaa/AAA 90,145
Washington Multnomah & Yamhill County School
District #1J
1,295,000 5.250%, 06/01/2013 Aa3/NR 1,293,381
Yamhill County School District #29J (Financial
Security Assurance Insured)
2,000,000 5.350%, 06/01/2006 Aaa/AAA 2,047,500
Total State of Oregon General Obligation Bonds 152,849,796
STATE OF OREGON REVENUE BONDS - 49.9%
AIRPORT REVENUE BONDS - 1.4%
Port of Portland Airport (Financial Guaranty
Insurance Corporation Insured)
500,000 5.500%, 07/01/2006 Aaa/AAA 513,510
1,295,000 5.000%, 07/01/2028 Aaa/AAA 1,171,975
Port of Portland Airport (MBIA Corporation Insured)
600,000 6.400%, 07/01/2003 NR/AAA 614,640
Port of Portland Airport (AMBAC Indemnity
Corporation Insured)
2,000,000 5.500%, 07/01/2024 Aaa/AAA 1,982,500
Total Airport Revenue Bonds 4,282,625
</PAGE>
<PAGE>
CERTIFICATE OF PARTICIPATION REVENUE BONDS - 11.0%
Marion County Certificate of Participation
(MBIA Corporation Insured)
$ 1,000,000 5.000%, 06/01/2023 Aaa/AAA $ 916,250
Multnomah County Certificate of Participation
1,000,000 5.200%, 07/01/2005 Aa3/NR 1,021,250
3,100,000 6.000%, 08/01/2012 Aa/A 3,208,500
Oregon State Department of Administration Services
(AMBAC Indemnity Corporation Insured)
2,000,000 4.875%, 05/01/2018 Aaa/AAA 1,845,000
950,000 5.000%, 11/01/2019 Aaa/AAA 894,188
1,500,000 5.800%, 05/01/2024 Aaa/AAA 1,601,250
2,500,000 5.000%, 05/01/2024 Aaa/AAA 2,284,375
3,500,000 6.000%, 05/01/2026 Aaa/AAA 3,631,250
Oregon State Department of Administration Services
(MBIA Corporation Insured)
1,480,000 5.375%, 11/01/2016 Aaa/AAA 1,481,850
5,000,000 5.500%, 11/01/2020 Aaa/AAA 4,962,500
Oregon State Department of Administration Services
(Financial Security Assurance Insured)
2,000,000 5.750%, 04/01/2014 Aaa/AAA 2,085,000
State of Oregon Certificate of Participation
(MBIA Corporation Insured)
1,250,000 5.700%, 01/15/2010 Aaa/AAA 1,275,000
2,750,000 6.200%, 11/01/2012 Aaa/AAA 2,866,875
1,000,000 5.500%, 01/15/2015 Aaa/AAA 1,007,500
550,000 5.500%, 01/15/2015 Aaa/AAA 554,125
500,000 5.800%, 03/01/2015 Aaa/AAA 508,125
1,000,000 5.800%, 03/01/2015 Aaa/AAA 1,016,250
2,000,000 6.250%, 11/01/2019 Aaa/AAA 2,087,500
Washington County Educational Services Certificates
of Participation
645,000 5.625%, 06/01/2016 A1/NR 648,225
Washington County Educational Services, Certificates
of Participation, (MBIA Corporation Insured)
830,000 5.750%, 06/01/2025 Aaa/AAA 834,150
Total Certificate of Participation Revenue Bonds 34,729,163
</PAGE>
<PAGE>
HOSPITAL REVENUE BONDS - 7.6%
Clackamas Hospital Facilities Authority (Adventist
Health System/West) (MBIA Corporation Insured)
$ 2,000,000 6.350%, 03/01/2009 Aaa/AAA $ 2,077,500
Clackamas Hospital Facilities Authority (Sisters of
Providence Hospital)
500,000 6.375%, 10/01/2004 A1/AA- 520,000
Clackamas Hospital Facilities Authority (Legacy
Health System)
2,000,000 5.250%, 02/15/2017 NR/AA 1,932,500
2,980,000 5.250%, 02/15/2018 NR/AA 2,857,075
Clackamas Hospital Facilities Authority (Legacy
Health System) (MBIA Corporation Insured)
2,650,000 4.750%, 02/15/2011 Aaa/AAA 2,557,250
Clackamas County Oregon Hospital Facilities
Authority (Mary's Woods)
3,450,000 6.625%, 05/15/2029 NR/NR* 3,398,250
Douglas County Hospital Facilities Authority
(Catholic Health) (MBIA Corporation Insured)
535,000 5.600%, 11/15/2005 Aaa/AAA 556,400
Medford Hospital Authority (Asante Health Systems)
(MBIA Corporation Insured)
1,000,000 5.000%, 08/15/2018 Aaa/AAA 926,250
3,000,000 5.125%, 08/15/2028 Aaa/AAA 2,718,750
Salem Oregon Hospital Facilities Authority
1,750,000 5.000%, 08/15/2018 NR/AA- 1,585,938
Western Lane County Hospital Facilities Authority
(Sisters of St. Joseph Hospital) (MBIA Corporation
Insured)
1,000,000 5.625%, 08/01/2007 Aaa/AAA 1,046,250
3,765,000 5.750%, 08/01/2019 Aaa/AAA 3,797,943
Total Hospital Revenue Bonds 23,974,106
HOUSING, EDUCATIONAL, AND CULTURAL REVENUE
BONDS - 9.5%
Clackamas Community College District Revenue
(MBIA Corporation Insured)
1,865,000 5.700%, 06/01/2016 Aaa/AAA 1,960,581
Multnomah County Oregon Educational Facility
(University of Portland)
1,000,000 6.000%, 04/01/2020 NR/BBB+ 982,500
</PAGE>
<PAGE>
Portland Oregon Housing Authority
$ 5,140,000 5.100%, 01/01/2027 NR/A $ 4,491,075
State of Oregon Housing Finance Agency,
1,000,000 6.800%, 07/01/2013 AA2/A+ 1,028,270
State of Oregon Housing and Community Services,
695,000 5.900%, 07/01/2012 Aa2/NR 724,537
500,000 6.700%, 07/01/2013 Aa2/NR 515,185
405,000 6.350%, 07/01/2014 Aa2/NR 423,731
2,000,000 6.050%, 07/01/2020 Aa2/NR 2,057,500
2,000,000 5.400%, 07/01/2027 Aa2/NR 1,910,000
3,105,000 6.875%, 07/01/2028 Aa2/NR 3,217,556
1,000,000 6.000%, 07/01/2020 Aa2/NR 1,018,750
State of Oregon Housing and Community Services,
(MBIA Corporation Insured)
1,500,000 5.450%, 07/01/2024 Aaa/AAA 1,447,500
State of Oregon Housing, Educational and Cultural
Facilities Authority (George Fox University)
(LOC: Bank of America)
1,000,000 5.700%, 03/01/2017 NR/AA- 1,000,000
Oregon Health Sciences University Revenue
(MBIA Corporation Insured)
4,500,000 5.250%, 07/01/2015 Aaa/AAA 4,471,875
8,935,000 0.000%, 07/01/2021 (zero coupon) Aaa/AAA 2,702,838
City of Salem Educational Facilities (Willamette
University),
1,000,000 6.000%, 04/01/2010 A2/NR 1,041,250
Yamhill County Educational Services (AMBAC
Indemnity Corporation Insurance)
1,000,000 5.150%, 07/01/2019 NR/AAA 957,500
Total Housing, Educational, and Cultural
Revenue Bonds 29,950,648
TRANSPORTATION REVENUE BONDS - 3.5%
State of Oregon Department of Transportation
(Light Rail) (MBIA Corporation Insured),
2,000,000 6.000%, 06/01/2005 Aaa/AAA 2,120,000
</PAGE>
<PAGE>
Oregon State Department Transportation Highway
$ 2,555,000 5.375%, 11/15/2018 Aa1/AA+ $ 2,519,868
Port St. Helens, Oregon Pollution
75,000 7.750%, 02/01/2006 A3/NR 77,719
Tri-County Metropolitan Transportation District
3,685,000 5.700%, 08/01/2013 Aa3/AA+ 3,758,700
2,500,000 5.400%, 06/01/2019 NR/AA 2,415,625
Total Transportation Revenue Bonds 10,891,912
URBAN RENEWAL REVENUE BONDS - 1.5%
City of Portland Urban Renewal
300,000 9.000%, 12/01/2002 A/NR 302,082
Clackamas County Oregon, Tax Allocation
1,000,000 6.500%, 05/01/2020 NR/NR 1,000,380
Portland Oregon Arpt Way Renewal & Redev
(AMBAC Indemnity Corporation Insured)
1,665,000 5.750%, 06/15/2020 Aaa/NR 1,692,056
Portland Oregon Urban Renewal Tax Allocation
(AMBAC Indemnity Corporation Insured)
2,000,000 5.450%, 06/15/2019 AAA/NR 1,980,000
Total Urban Renewal Revenue Bonds 4,974,518
UTILITY REVENUE BONDS - 4.4%
Emerald Peoples Utility District Electic Systems
(Financial Security Assurance Insured)
1,000,000 6.750%, 11/01/2016 Aaa/AAA 1,024,900
City of Eugene Electric Utility (Financial Security
Assurance Insured)
1,600,000 5.000%, 08/01/2018 Aaa/AAA 1,504,000
1,340,000 5.050%, 08/01/2022 Aaa/AAA 1,237,825
City of Eugene Electric Utility (MBIA Corporation
Insured)
640,000 4.850%, 08/01/2013 Aaa/AAA 619,200
1,200,000 5.000%, 08/01/2023 Aaa/AAA 1,102,500
City of Eugene Electric Utility
610,000 6.650%, 08/01/2009 A1/AA 620,949
660,000 6.650%, 08/01/2010 A1/AA 671,847
1,000,000 6.000%, 08/01/2011 A1/AA 1,018,750
700,000 6.700%, 08/01/2011 A1/AA 712,845
500,000 5.000%, 08/01/2017 A1/AA 466,875
1,400,000 5.800%, 08/01/2019 A1/AA 1,468,250
</PAGE>
<PAGE>
City of Eugene Trojan Nuclear Project
$ 2,310,000 5.900%, 09/01/2009 Aa1/AA- $ 2,318,131
Northern Wasco County Public Utility Development
(Financial Security Assurance Insured)
1,000,000 5.625%, 12/01/2022 Aaa/AAA 997,500
Total Utility Revenue Bonds 13,763,572
WATER AND SEWER REVENUE BONDS - 10.0%
City of Klamath Falls Water (Financial Security
Assurance Insured)
1,100,000 6.100%, 06/01/2014 Aaa/AAA 1,144,000
City of Klamath Wastewater (AMBAC Indemnity
Corporation Insured)
1,545,000 5.650%, 06/01/2020 Aaa/AAA 1,562,381
City of Portland Sewer, (MBIA Corporation Insured)
2,500,000 5.250%, 06/01/2016 Aaa/AAA 2,465,625
City of Portland Sewer (Financial Guaranty
Insurance Corporation Insured)
500,000 6.000%, 10/01/2012 Aaa/AAA 523,750
2,355,000 6.250%, 06/01/2015 Aaa/AAA 2,505,131
2,500,000 5.750%, 08/01/2019 Aaa/AAA 2,550,000
Lebanon Oregon Wastewater Revenue (Financial
Security Assurance Insured)
1,000,000 5.700%, 03/01/2020 Aaa/AAA 1,018,750
Portland Water System Revenue
1,440,000 5.500%, 08/01/2015 Aa1/NR 1,449,000
7,420,000 5.500%, 08/01/2019 Aa1/NR 7,438,550
Salem Oregon Water & Sewer Rev Light & Power
(Financial Security Assurance Insured)
1,970,000 5.375%, 06/01/2016 Aaa/AAA 1,967,538
3,025,000 5.500%, 06/01/2020 Aaa/AAA 3,013,656
Washington County Unified Sewer Agency (AMBAC
Indemnity Corporation Insured)
2,120,000 5.900%, 10/01/2006 Aaa/AAA 2,220,700
315,000 5.900%, 10/01/2006 Aaa/AAA 329,568
2,500,000 6.125%, 10/01/2012 Aaa/AAA 2,640,625
750,000 6.125%, 10/01/2012 Aaa/AAA 792,188
Total Water and Sewer Revenue Bonds 31,621,462
</PAGE>
<PAGE>
OTHER REVENUE BONDS - 1.0%
Baker County Pollution Control (Ash Grove Cement
West Project) (Small Business Administration Insured)
$ 355,000 6.200%, 07/01/2004 Aaa/NR $ 356,416
380,000 6.300%, 07/01/2005 Aaa/NR 381,607
Oregon Economic Development Commission
(Consolidated Freightways)
1,500,000 7.000%, 04/01/2004 A2/A- 1,502,910
Multnomah County School District #1J, Special
Obligations
1,000,000 5.000%, 03/01/2007 A1/A 1,005,000
Total Other Revenue Bonds 3,245,933
Total State of Oregon Revenue Bonds 157,433,939
PUERTO RICO - 0.6%
Puerto Rico Commonwealth Infrastructure,
(AMBAC Indemnity Corporation Insured)
2,100,000 5.000%, 07/01/2028 Aaa/AAA 1,934,625
Total Municipal Bonds (cost $ 308,675,579**) 98.9% 312,218,361
Other assets in excess of liabilities 1.1 3,464,720
Net Assets 100.0% $ 315,683,081
</TABLE>
(*) Any security not rated has been determined by the
Investment Sub-Adviser to have sufficient quality to be
ranked in the top four credit ratings if a credit
rating were to be assigned by a rating service.
(**) Cost for Federal tax purposes is identical.
PORTFOLIO ABBREVIATIONS:
AMBAC - American Municipal Bond Assurance Corp.
FGIC - Financial Guaranty Insurance Corp.
FSA - Financial Security Assurance
MBIA - Municipal Bond Investors Assurance Corp.
See accompanying notes to financial statements.
<PAGE>
</PAGE>
TAX-FREE TRUST OF OREGON
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 2000
<TABLE>
<S> <C> <C> <C>
ASSETS
Investments at value (cost $308,675,579) $ 312,218,361
Cash 167,624
Interest receivable 5,019,302
Receivable for Trust shares sold 171,410
Receivable for investment securities sold 10,000
Other assets 2,985
Total assets 317,589,682
LIABILITIES
Payable for investment securities purchased 1,127,638
Dividends payable 273,267
Payable for Trust shares redeemed 213,148
Distribution fees payable 123,279
Management fees payable 103,877
Accrued expenses 65,392
Total liabilities 1,906,601
NET ASSETS $ 315,683,081
Net Assets consist of:
Capital Stock - Authorized an unlimited number of shares, par value $.01 per share 306,901
Additional paid-in capital 311,570,216
Net unrealized appreciation on investments 3,542,782
Accumulated net realized gain on investments 215,754
Undistributed net investment income 47,428
$ 315,683,081
CLASS A
Net Assets $ 289,371,774
Capital shares outstanding 28,130,465
Net asset value and redemption price per share $10.29
Offering price per share (100/96 of $10.29 adjusted to nearest cent) $10.72
CLASS C
Net Assets $ 5,840,974
Capital shares outstanding 568,331
Net asset value and offering price per share $ 10.28
Redemption price per share (* a charge of 1% is imposed on the redemption
proceeds of the shares, or on the original price, whichever is lower,
if redeemed during the first 12 months after purchase) 10.28*
CLASS Y
Net Assets $ 20,470,333
Capital shares outstanding 1,991,339
Net asset value, offering and redemption price per share $ 10.28
</TABLE>
See accompanying notes to financial statements.
</PAGE>
<PAGE>
TAX-FREE TRUST OF OREGON
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 2000
<TABLE>
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 17,845,180
Expenses:
Management fees (note 3) $ 1,264,345
Distribution and service fees (note 3) 482,902
Transfer and shareholder servicing agent fees 178,916
Trustees' fees and expenses (note 8) 91,902
Legal fees 65,641
Shareholders' reports and proxy statements 58,703
Custodian fees 30,177
Audit and accounting fees 24,750
Insurance 13,265
Registration fees and dues 12,661
Miscellaneous 39,497
2,262,759
Expenses paid indirectly (note 7) (56,453)
Net expenses 2,206,306
Net investment income 15,638,874
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain from securities transactions 250,646
Change in unrealized appreciation on investments (83,191)
Net realized and unrealized gain on investments 167,455
Net increase in net assets resulting from operations $ 15,806,329
</TABLE>
See accompanying notes to financial statements.
</PAGE>
<PAGE>
TAX-FREE TRUST OF OREGON
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
2000 1999
</CAPTION>
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 15,638,874 $ 15,888,152
Net realized gain from securities transactions 250,646 389,398
Change in unrealized appreciation on investments (83,191) (18,253,687)
Change in net assets resulting from operations 15,806,329 (1,976,137)
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 6):
Class A Shares:
Net investment income (14,487,015) (15,357,860)
Net realized gain on investments - (603,490)
Class C Shares:
Net investment income (178,038) (82,349)
Net realized gain on investments - (2,451)
Class Y Shares:
Net investment income (967,824) (607,653)
Net realized gain on investments - (20,435)
Change in net assets from distributions (15,632,877) (16,674,238)
CAPITAL SHARE TRANSACTIONS (NOTE 9):
Proceeds from shares sold 38,408,984 42,624,580
Reinvested dividends and distributions 8,815,451 9,912,125
Cost of shares redeemed (60,461,271) (39,440,132)
Change in net assets from capital share transactions (13,236,836) 13,096,573
Change in net assets (13,063,384) (5,553,802)
NET ASSETS:
Beginning of period 328,746,465 334,300,267
End of period $ 315,683,081 $ 328,746,465
</TABLE>
See accompanying notes to financial statements.
</PAGE>
<PAGE>
TAX-FREE TRUST OF OREGON
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Tax-Free Trust of Oregon (the "Trust") is a separate portfolio of The
Cascades Trust. The Cascades Trust (the "Business Trust") is an open-end
investment company, which was organized on October 17, 1985, as a Massachusetts
business trust and is authorized to issue an unlimited number of shares. The
Trust is a non-diversified portfolio which commenced operations on June 16, 1986
and until April 5, 1996, offered only one class of shares. On that date, the
Trust began offering two additional classes of shares, Class C and Class Y
shares. All shares outstanding prior to that date were designated as Class A
shares and are sold with a front-payment sales charge and bear an annual service
fee. Class C shares are sold with a level-payment sales charge with no payment
at time of purchase but level service and distribution fees from date of
purchase through a period of six years thereafter. A contingent deferred sales
charge of 1% is assessed to any Class C shareholder who redeems shares of this
Class within one year from the date of purchase. The Class Y shares are only
offered to institutions acting for an investor in a fiduciary, advisory, agency,
custodian or similar capacity and are not offered directly to retail investors.
Class Y shares are sold at net asset value without any sales charge, redemption
fees, contingent deferred sales charge or distribution or service fees. On
January 31, 1998 the Trust established Class I shares, which are offered and
sold only through financial intermediaries and are not offered directly to
retail investors. At September 30, 2000 there were no Class I shares
outstanding. All classes of shares represent interests in the same portfolio of
investments and are identical as to rights and privileges but differ with
respect to the effect of sales charges, the distribution and/or service fees
borne by each class, expenses specific to each class, voting rights on matters
affecting a single class and the exchange privileges of each class.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Trust in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles for investment
companies.
a) PORTFOLIO VALUATION: Municipal securities which have remaining maturities
of more than 60 days are valued at fair value each business day based upon
information provided by a nationally prominent independent pricing service
and periodically verified through other pricing services; in the case of
securities for which market quotations are readily available, securities
are valued at the mean of bid and asked quotations and, in the case of
other securities, at fair value determined under procedures established by
and under the general supervision of the Board of Trustees. Securities
which mature in 60 days or less are valued at amortized cost if their term
to maturity at purchase was 60 days or less, or by amortizing their
unrealized appreciation or depreciation on the 61st day prior to maturity,
if their term to maturity at purchase exceeded 60 days.
b) SECURITIES TRANSACTIONS AND RELATED INVESTMENT INCOME: Securities
transactions are recorded on the trade date. Realized gains and losses from
securities transactions are reported on the identified cost basis. Interest
income is recorded daily on the accrual basis and is adjusted for
amortization of premium and accretion of original issue discount. Market
discount is recognized upon disposition of the security.
</PAGE>
<PAGE>
c) FEDERAL INCOME TAXES: It is the policy of the Trust to qualify as a
regulated investment company by complying with the provisions of the
Internal Revenue Code applicable to certain investment companies. The Trust
intends to make distributions of income and securities profits sufficient
to relieve it from all, or substantially all, Federal income and excise
taxes.
d) ALLOCATION OF EXPENSES: Expenses, other than class-specific expenses, are
allocated daily to each class of shares based on the relative net assets of
each class. Class-specific expenses, which include distribution and service
fees and any other items that are specifically attributed to a particular
class, are charged directly to such class.
e) USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting period. Actual
results could differ from those estimates.
3. FEES AND RELATED PARTY TRANSACTIONS
(a) MANAGEMENT ARRANGEMENTS:
Aquila Management Corporation (the "Manager"), the Trust's founder and
sponsor, serves as the Manager for the Trust under an Advisory and
Administration Agreement with the Trust. The portfolio management of the Trust
has been delegated to a sub-adviser as described below. Under the Advisory and
Administrative Agreement, the Manager provides all administrative services to
the Trust, other than those relating to the day-to-day portfolio management. The
Manager's services include providing the office of the Trust and all related
services as well as overseeing the activities of the sub-adviser and all the
various support organizations to the Trust such as the shareholder servicing
agent, custodian, legal counsel, auditors and distributor and additionally
maintaining the Trust's accounting books and records. For its services, the
Manager is entitled to receive a fee which is payable monthly and computed as of
the close of business each day at the annual rate of 0.40 of 1% on the Trust's
net assets.
U.S. Bank National Association (the "Sub-Adviser"), serves as the
Investment Sub-Adviser for the Trust under a Sub-Advisory Agreement between the
Manager and the Sub-Adviser. Under this agreement, the Sub-Adviser continuously
provides, subject to oversight of the Manager and the Board of Trustees of the
Trust, the investment program of the Trust and the composition of its portfolio,
arranges for the purchases and sales of portfolio securities, and provides for
daily pricing of the Trust's portfolio. For its services, the Sub-Adviser is
entitled to receive a fee from the Manager which is payable monthly and computed
as of the close of business each day at the annual rate of 0.18 of 1% on the
Trust's net assets.
</PAGE>
<PAGE>
For the year ended September 30, 2000, the Trust incurred fees for advisory
and administrative services of $1,264,345.
Specific details as to the nature and extent of the services provided by
the Manager and the Sub-Adviser are more fully defined in the Trust's Prospectus
and Statement of Additional Information.
b) DISTRIBUTION AND SERVICE FEES:
The Trust has adopted a Distribution Plan (the "Plan") pursuant to Rule
12b-1 (the "Rule") under the Investment Company Act of 1940. Under one part of
the Plan, with respect to Class A Shares, the Trust is authorized to make
service fee payments to broker-dealers or others ("Qualified Recipients")
selected by Aquila Distributors, Inc. (the "Distributor"), including, but not
limited to, any principal underwriter of the Trust, with which the Distributor
has entered into written agreements contemplated by the Rule and which have
rendered assistance in the distribution and/or retention of the Trust's shares
or servicing of shareholder accounts. The Trust makes payment of this service
fee at the annual rate of 0.15% of the Trust's average net assets represented by
Class A Shares. For the year ended September 30, 2000, service fees on Class A
Shares amounted to $439,079, of which the Distributor received $15,277.
Under another part of the Plan, the Trust is authorized to make payments
with respect to Class C Shares to Qualified Recipients which have rendered
assistance in the distribution and/or retention of the Trust's Class C shares or
servicing of shareholder accounts. These payments are made at the annual rate of
0.75% of the Trust's net assets represented by Class C Shares and for the year
ended September 30, 2000, amounted to $32,867. In addition, under a Shareholder
Services Plan, the Trust is authorized to make service fee payments with respect
to Class C Shares to Qualified Recipients for providing personal services and/or
maintenance of shareholder accounts. These payments are made at the annual rate
of 0.25% of the Trust's net assets represented by Class C Shares and for the
year ended September 30, 2000, amounted to $10,956. The total of these payments
made with respect to Class C Shares amounted to $43,823, of which the
Distributor received $24,831.
Specific details about the Plans are more fully defined in the Trust's
Prospectus and Statement of Additional Information.
Under a Distribution Agreement, the Distributor serves as the exclusive
distributor of the Trust's shares. Through agreements between the Distributor
and various broker-dealer firms ("dealers"), the Trust's shares are sold
primarily through the facilities of these dealers having offices within Oregon,
with the bulk of sales commissions inuring to such dealers. For the year ended
September 30, 2000, total commissions on sales of Class A Shares amounted to
$648,241, of which the Distributor received $131,783.
</PAGE>
<PAGE>
4. PURCHASES AND SALES OF SECURITIES
During the year ended September 30, 2000, purchases of securities and
proceeds from the sales of securities aggregated $63,677,951 and $74,404,278,
respectively.
At September 30, 2000, aggregate gross unrealized appreciation for all
securities in which there is an excess of market value over tax cost amounted to
$6,958,567, and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over market value amounted to $3,415,785,
for a net unrealized appreciation of $3,542,782.
5. PORTFOLIO ORIENTATION
Since the Trust invests principally and may invest entirely in double
tax-free municipal obligations of issuers within Oregon, it is subject to
possible risks associated with economic, political, or legal developments or
industrial or regional matters specifically affecting Oregon and whatever
effects these may have upon Oregon issuers' ability to meet their obligations.
Two such developments, Measure 5, a 1990 amendment to the Oregon Constitution,
as well as Measures 47 and 50, limit the taxing and spending authority of
certain Oregon governmental entities. Although these amendments could have an
adverse effect on the general financial condition of certain municipal entities
that would impair the ability of certain Oregon issuer's to pay interest and
principal on their obligations, experience over the history of such amendments
would indicate a low probability of this happening.
6. DISTRIBUTIONS
The Trust declares dividends daily from net investment income and makes
payments monthly in additional shares at the net asset value per share, in cash,
or in a combination of both, at the shareholder's option. Net realized capital
gains, if any, are distributed annually and are taxable.
The Trust intends to maintain, to the maximum extent possible, the
tax-exempt status of interest payments received from portfolio municipal
securities in order to allow dividends paid to shareholders from net investment
income to be exempt from regular Federal and State of Oregon income taxes.
However, due to differences between financial statement reporting and Federal
income tax reporting requirements, distributions made by the Trust may not be
the same as the Trust's net investment income, and/or net realized securities
gains. Further, a small portion of the dividends may, under some circumstances,
be subject to taxes at ordinary income and/or capital gain rates.
7. EXPENSES
The Trust has negotiated an expense offset arrangement with its custodian,
wherein it receives credit toward the reduction of custodian fees and other
Trust expenses whenever there are uninvested cash balances.The Statement of
Operations reflects the total expenses before any offset, the amount of offset
and the net expenses. It is the general intention of the Trust to invest, to the
extent practicable, some or all of cash balances in income-producing assets
rather than leave cash on deposit.
</PAGE>
<PAGE>
8. TRUSTEES' FEES AND EXPENSES
During the fiscal year there were ten Trustees, two of whom are affiliated
with the Manager and are not paid any trustee fees. Trustees' fees paid during
the year were at the annual rate of $7,400 for carrying out their
responsibilities and attendance at regularly scheduled Board Meetings. If
additional or special meetings are scheduled for the Trust, separate meeting
fees are paid for each such meeting to those Trustees in attendance. The Trust
also reimburses Trustees for expenses such as travel, accommodations, and meals
incurred in connection with attendance at regularly scheduled or special Board
Meetings and outreach meetings of Shareholders. For the fiscal year ended
September 30, 2000 such reimbursements averaged approximately $2,700 per
Trustee.
9. CAPITAL SHARE TRANSACTIONS
Transactions in Capital Shares of the Trust were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
SHARES AMOUNT SHARES AMOUNT
</CAPTION>
<S> <C> <C> <C> <C> <C> <C>
CLASS A SHARES:
Proceeds from shares sold 2,347,715 $ 23,841,878 3,077,787 $ 32,804,150
Reinvested dividends and
distributions 847,730 8,614,888 912,832 9,714,231
Cost of shares redeemed (5,114,553) (51,870,848) (3,633,583) (38,503,659)
Net change (1,919,108) (19,414,082) 357,036 4,014,722
CLASS C SHARES:
Proceeds from shares sold 395,539 4,011,650 211,679 2,254,086
Reinvested dividends and
distributions 10,858 110,158 4,179 44,213
Cost of shares redeemed (130,442) (1,323,388) (30,354) (317,699)
Net change 275,955 2,798,420 185,504 1,980,600
CLASS Y SHARES:
Proceeds from shares sold 1,040,793 10,555,456 721,432 7,566,344
Reinvested dividends and
distributions 8,911 90,405 14,352 153,681
Cost of shares redeemed (718,437) (7,267,035) (58,206) (618,774)
Net change 331,267 3,378,826 677,578 7,101,251
Total transactions in Trust
shares (1,311,886) $ (13,236,836) 1,220,118 $ 13,096,573
</TABLE>
</PAGE>
<PAGE>
TAX-FREE TRUST OF OREGON
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS A
YEAR ENDED SEPTEMBER 30,
2000 1999 1998 1997 1996
</CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.27 $10.86 $10.68 $10.49 $10.55
Income from Investment Operations:
Net investment income 0.50 0.50 0.53 0.53 0.54
Net gain (loss) on securities (both
realized and unrealized) 0.02 (0.56) 0.19 0.21 (0.05)
Total from Investment Operations 0.52 (0.06) 0.72 0.74 0.49
Less Distributions (note 6):
Dividends from net investment income (0.50) (0.51) (0.53) (0.54) (0.54)
Distributions from capital gains - (0.02) (0.01) (0.01) (0.01)
Total Distributions (0.50) (0.53) (0.54) (0.55) (0.55)
Net Asset Value, End of Period $10.29 $10.27 $10.86 $10.68 $10.49
Total Return (not reflecting sales charge)(%) 5.26 (0.62) 6.90 7.21 4.76
Ratios/Supplemental Data
Net Assets, End of Period ($ millions) 289 309 322 312 305
Ratio of Expenses to Average Net Assets (%) 0.71 0.71 0.71 0.73 0.73
Ratio of Net Investment Income to
Average Net Assets (%) 4.93 4.70 4.83 5.01 5.15
Portfolio Turnover Rate (%) 20 16 7 5 10
The expense ratios after giving effect to the expense offset for uninvested
cash balances were:
Ratio of Expenses to Average Net Assets (%) 0.70 0.68 0.69 0.72 0.72
</TABLE>
</PAGE>
<PAGE>
TAX-FREE TRUST OF OREGON
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS C(1) CLASS Y(1)
PERIOD(1) PERIOD(1)
YEAR ENDED SEPTEMBER 30, ENDED YEAR ENDED SEPTEMBER 30, ENDED
2000 1999 1998 1997 9/30/96 2000 1999 1998 1997 9/30/96
</CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.27 $10.85 $10.67 $10.49 $10.34 $10.27 $10.85 $10.68 $10.49 $10.34
Income from Investment Operations:
Net investment income 0.41 0.41 0.43 0.43 0.22 0.52 0.52 0.54 0.54 0.27
Net gain (loss) on securities (both
realized and unrealized) 0.02 (0.55) 0.20 0.21 0.15 0.01 (0.56) 0.19 0.21 0.15
Total from Investment Operations 0.43 (0.14) 0.63 0.64 0.37 0.53 (0.04) 0.73 0.75 0.42
Less Distributions (note 6):
Dividends from net investment income (0.42) (0.42) (0.44) (0.45) (0.22) (0.52) (0.52) (0.55) (0.55) (0.27)
Distributions from capital gains - (0.02) (0.01) (0.01) - - (0.02) (0.01) (0.01) -
Total Distributions (0.42) (0.44) (0.45) (0.46) (0.22) (0.52) (0.54) (0.56) (0.56) (0.27)
Net Asset Value, End of Period $10.28 $10.27 $10.85 $10.67 $10.49 $10.28 $10.27 $10.85 $10.68 $10.49
Total Return (not reflecting sales charge) (%) 4.27 (1.38) 6.00 6.20 3.61+ 5.32 (0.39) 6.96 7.37 4.14+
Ratios/Supplemental Data
Net Assets, End of Period ($ millions) 5.8 3.0 1.2 .8 .3 20.5 17.0 10.7 4.0 .2
Ratio of Expenses to Average Net
Assets (%) 1.55 1.56 1.56 1.58 1.56* 0.56 0.56 0.55 0.58 0.58*
Ratio of Net Investment Income to
Average Net Assets (%) 4.03 3.84 3.98 4.14 4.17* 5.08 4.86 4.95 5.21 5.35*
Portfolio Turnover Rate (%) 20 16 7 5 10+ 20 16 7 5 10+
The expense ratios after giving effect to the expense offset for uninvested
cash balances were:
Ratio of Expenses to Average
Net Assets (%) 1.54 1.53 1.54 1.57 1.56* 0.54 0.53 0.53 0.57 0.57*
</TABLE>
(1) From April 5, 1996 to September 30, 1996.
+ Not annualized.
* Annualized.
See accompanying notes to financial statements.
</PAGE>
<PAGE>
FEDERAL TAX STATUS OF DISTRIBUTIONS (UNAUDITED)
This information is presented in order to comply with a requirement of the
Internal Revenue Code AND NO CURRENT ACTION ON THE PART OF SHAREHOLDERS IS
REQUIRED.
For the fiscal year ended September 30, 2000, $15,627,615 of dividends paid
by Tax-Free Trust of Oregon, constituting 99.9965% of total dividends paid
during fiscal 2000, were exempt-interest dividends.
Prior to January 31, 2001, shareholders will be mailed IRS Form 1099-DIV
which will contain information on the status of distributions paid for the 2000
CALENDAR YEAR.
</PAGE>
<PAGE>
SHAREHOLDER MEETING RESULTS (UNAUDITED)
The Annual Meeting of Shareholders of Tax-Free Trust of Oregon (the
"Trust") was held on May 8, 2000. The holders of shares representing 65% of the
total net asset value of the shares entitled to vote were present in person or
by proxy. At the meeting, the following matters were voted upon and approved by
the shareholders (the resulting votes for each matter are presented below).
1. To elect Trustees.
Number of Votes:
TRUSTEE FOR WITHHELD
Lacy B. Herrmann 203,553,757 3,187,659
Vernon R. Alden 202,930,546 3,810,869
David B. Frohnmayer 203,605,303 3,136,112
James A. Gardner 204,225,971 2,515,444
Diana P. Herrmann 203,570,727 3,170,688
Sterling K. Jenson 203,466,251 3,275,164
Raymond H. Lung 203,840,745 2,900,671
John W. Mitchell 203,309,220 3,432,195
Richard C. Ross 203,114,140 3,627,276
Ralph R. Shaw 204,291,527 2,449,888
2. To ratify the selection of KPMG LLP as the Trust's independent auditors.
Number of Votes:
FOR AGAINST ABSTAIN
199,685,431 1,026,466 6,029,517
</PAGE>
